Archive for Oil Sands
An item that looks ready to show up in Tuesday’s Globe and Mail.
Alberta needs to leverage as much diversity in jobs and economic activity as we can out of the oil sands.
In the past few decades, Nisku, with a work force approaching 15,000, has grown from flat moose pasture to the pipe fabrication capital of Canada – and the massive marshalling yard for the great oil sands supply chain.
Just a stone’s throw from the diner, construction giant PCL operates one of the biggest pipe plants, running an integrated production process that creates $100-million of value a year. It practises manufacturing, Alberta-style – one engineered-to-order module at a time, not the mass-produced cars and trucks that roll off assembly lines in the old industrial heartland of eastern North America.
Manufacturing is not dead in Canada, but its focus has moved west to meet surging demand for energy gear, including transportable modules that, like Lego pieces, can be made in Niksu and fitted into remote oil sands sites. “Eighty per cent of what pushes our business is heavy oil,” Mr. Trigg says.
It has propelled Nisku’s industrial park to its status as the second-biggest energy-focused park on the continent – behind a Houston location – and it’s all just a short drive from the site of 1947 Leduc strike, where the post-Second World War oil boom began in Alberta.
These days, it is part of the sprawling industrial region south of Edmonton that comprises thousands of hectares of industrial land, close to 3,000 companies and almost 30,000 workers – almost half that number in the Nisku Business Park alone.
Besides the massive fabrication complexes run by Edmonton-based PCL and rival construction firm Ledcor, a lot of other things happen in Nisku – including energy services of all kinds, from drilling firms to small welding shops to Ritchie Brothers, the world’s largest industrial auctioneer which does a big business selling used equipment out of its Nisku site.
I think the corruption of the environmental movement is one of the least reported scandals.
Much of modern left wing thinking is an adject failure. What keeps it going is money.
A lot of that money comes from various wealthy U.S. foundations. It’s odd why they prop up bad ideas and bad thinking.
In Saturday’s Financial Post, Lawrence Solomon discusses U.S. money flowing into Canadian green groups.
Americans should be able to influence Canada’s environmental debates. They should not be able to do so under the radar.
But they do, and not just in the case of the proposed Northern Gateway oil pipeline from the oil sands of Alberta to the West Coast — today’s hot environmental topic. Unbeknownst to most Canadians, over the past two decades Canada’s fabulously influential environmental movement increasingly has had U.S. paymasters. As elsewhere, he who pays the piper calls the tunes.
It wasn’t always so, and foreign money wasn’t always a problem. Canada’s environmental groups in the 1970s and 1980s were a diverse lot advocating all-over-the map solutions to the many environmental problems they tackled. The Canadian groups would write up funding proposals for their ideas, shop them around to potential funders on both sides of the border, sometimes finding takers among them, sometimes not. It was largely a hit-and-miss operation, and especially hard to obtain funding from the U.S. foundations, which tended to favour U.S. environmental groups. In this marketplace of ideas few funding proposals found much favour, and most environmental groups on both sides of the border struggled to survive.
Then the funders — typically the well-heeled U.S. foundations, most of them offshoots of corporate fortunes — got down to business.
Back on Tuesday, the dedicated Vivian Krause wrote the Oil Sands Money Trail.
By my analysis and calculations, since 2000, U.S. foundations have granted at least US$300-million to various environmental organizations and campaigns in Canada, especially in B.C. The San Francisco-based Gordon and Betty Moore Foundation alone has granted US$92-million. Gordon Moore is one of the co-founders of Intel Corp. The William and Flora Hewlett Foundation and the David and Lucile Packard Foundation have granted a combined total of US$90-million, mostly to B.C. groups. These foundations were created by the founders of Hewlett-Packard Co.
The Philadelphia-based Pew Charitable Trusts, created by the founders of Sun Oil, has granted at least US$82-million over the past decade and at least US$40-million has been granted by other U.S. foundations.
Of the US$300-million that I’ve traced, at least US$150-million was specifically for the Great Bear Rainforest Initiative, the Pacific North Coast Integrated Management Area and the Boreal Forest Initiative.
The Great Bear Rainforest is a 21-million-hectare zone that extends from the northern tip of Vancouver Island to the southern tip of Alaska. Environmentalists now claim that oil tanker traffic must not be allowed in the Great Bear Rainforest in order to protect the kermode bear (aka the Great Spirit Bear). Whether this was the intention all along or not, the Great Bear Rainforest has become the Great Trade Barrier against oil exports to Asia.
Back at the end of October, I mentioned that I like DRIP’s, Dividend Reinvestment Plans.
I also like utility and pipeline stocks, Enbridge being one example.
The Yield Hog column in the Globe and Mail takes a look at Enbridge.
Ready? Let’s rewind to 2001.
Imagine you invested $10,000 in Enbridge shares 10 years ago, and you held the shares in a dividend reinvestment plan (DRIP) that permits fractional share purchases. In other words, every penny of your dividends would buy more shares, which in turn would produce more dividends.
Back on Dec. 7, 2001, Enbridge’s shares closed at $42.75, and the annual dividend was $1.40. The stock has split twice since then, so to make the 2001 numbers comparable to today’s, we’ll need to divide the dollar values by four. That gives us a share price of $10.6875 and annual dividend of 35 cents, respectively.
Now, fast-forward 10 years. On Dec. 9, 2011, Enbridge’s shares closed at $36.68 and – after 10 consecutive increases – the annual dividend has more than tripled to $1.13.
How much would your initial $10,000 investment be worth today? Well, based on the share price appreciation alone, you would have $34,320. That’s pretty good.
But including reinvested dividends, your initial $10,000 would have grown to $47,834. This works out to a return of 16.9 per cent annually, more than double the S&P/TSX’s total return of 7.6 per cent over the same period.
Granted, anyone can choose profitable stocks in hindsight, and Enbridge’s returns are exceptional. But it’s also true that Enbridge – a company I own – has been a top pick of conservative dividend investors for years thanks to the predictable nature of its earnings from energy businesses that are either regulated or supported by long-term contracts.
The point here is to illustrate that by harnessing the power of dividend growth, dividend reinvestment and compounding, an investor can achieve impressive returns.
Another column in the Globe and Mail thinks that pipeline stocks are looking expensive.
In case you haven’t noticed, pipeline stocks have gone on an incredible run this year. While the S&P/TSX Composite Index is down 11 per cent since January 1, pipeline stocks are up about 30 per cent on average, driven by a thirst for yield.
Demand from investors has been so heavy that Enbridge Inc. (ENB-T36.12-0.23-0.63%), which operates largest network of pipelines, now trades at price-earnings multiple of 28 times. That’s 40 per cent higher than its 5-year median P/E ratio of about 20 times. And last week, Pembina Pipeline Corp. (PPL-T29.40-0.57-1.90%) traded around 16 times forward cash flow, which is a very expensive for this metric.
I have read the comments to both columns and I’m inclined to agree with the sentiment that Enbridge is still a good buy, especially if there’s a bit of a dip in the share price.
Right at the end Tuesday evening I came across an interesting article by Frank McKenna.
It deals with how Canada needs to respond to the delay in the Keystone XL pipeline.
I can agree with pretty much all that he is putting forward here.
I would like to see more bitumen in kind since this could allow government to leverage construction of more refineries here in Alberta and Canada.
What is bitumen royalty in-kind (BRIK)?
In Alberta, royalties are a share of production from resources the government owns on behalf of Albertans. Under the Mines and Minerals Act, the government has the option to take its royalty share either in cash or in kind. Currently, the government takes its share of conventional crude oil production in kind and collects its royalty share for other resources in cash.
The decision to exercise the in-kind option for bitumen was identified in October 2007 as a way for the Crown to use its share of bitumen strategically to supply potential upgraders and refineries in Alberta, and to optimize its royalty share by marketing those volumes.
But real diversity demands even more options. We must also open up access to the East Coast. Existing pipelines to the East can be reversed with minimum time required. Larger pipes could also be laid in the same right of way. Refineries in Sarnia, Montreal, Quebec City, Newfoundland and Saint John, N.B., should be accessed.
A new line could be built from Montreal to Saint John. One East Coast refinery, the Irving Refinery of Saint John, is the largest refinery in Canada and the largest refinery on the East Coast. It is capable of using heavy oil at the present time and with the addition of a coker could process raw bitumen into synthetic crude oil.
Diversification also demands that we look at railways as a possible competitor to conventional pipelines. The railway industry is currently carrying petroleum products to Texas, Saint John and the West Coast, and is capable of carrying much more.
And diversification demands we continue to look at arguments made by former Alberta premier Peter Lougheed and others who call on the industry to process more of our raw products in Canada.
Synthetic crude oil has greater distribution options than raw bitumen. It also provides greater returns to the Canadian economy.
Governments have a critical role to play. They must examine their role to determine whether they have instruments available to them to create better economic returns from value-added projects, such as royalty reform, changes in depreciation allowances, access to bitumen in kind, and fast-tracked assessment procedures, low interest loans or loan guarantees, etc. This again would maximize the economic rent to Canada and provide greater flexibility in the distribution system. Governments and industry should be looking at these options with urgency in view of the value destruction that we are currently experiencing.
Let’s be clear: Diversification comes with some significant investments, including public monies. But we pay a higher price by relying on a single market.
No business would ever be comfortable serving just one customer — regardless of how lucrative the relationship. Canada can do better by broadening its customer base. It only makes sense for a trading nation in a global economy.
An article coming in Saturday’s Globe and Mail continues with the topic of doing more oil sands refining in Canada instead of exporting it.
Currently, about 60 per cent of Alberta’s oil sands production is upgraded – turned from bitumen into lighter crude – in the province.
That percentage is expected to decline in coming years as oil sands production outweighs the capacity to process it. That’s why TransCanada Corp.’s (TRP-T41.570.972.39%) Keystone XL is so important for the growth of the oil sands industry.
“We should be upgrading to the maximum extent possible within Alberta, within Canada, before we export,” said former Industry minister Jim Prentice, now vice-chairman of Canadian Imperial Bank of Commerce.
“We should maximize the value-added that is done in Canada before any of those products leave.”
Proponents of Alberta’s upgrading and refining sector argue the time is now to grab hold of all of the benefits tied to the oil business, transforming the province into a more-rounded energy leader.
“With Keystone, we’ve realized how dependant we are on a single market. It is a wakeup call for us,” said Ian MacGregor, chair of startup North West Upgrading Inc., a company that aims to build an upgrading and refining complex in Alberta. “Someone’s told us that they might not let us do what we want.”
Mr. MacGregor supports Keystone, but believes its struggles demonstrate why local upgraders and refineries are necessary as oil producers try to reach new customers in the U.S. and Asia.
“It is a lot easier to get [to those markets] with refined products than it is with raw materials,” Mr. MacGregor said.
I agree with the sentiment of grabbing hold of all the benefits.
Alberta aims to boost the current amount of bitumen processed in the province to two-thirds. But the Energy Resources Conservation Board predicts only 47 per cent of Alberta’s bitumen will be processed locally by 2020. Bitumen extraction plans simply outstrip upgrading expansion plans.
A number of proposed Alberta upgraders have permits lined up and just need to get building started.
An additional 600,000 barrels of bitumen per day will have to be processed in Alberta by 2020 in order to maintain its upgrading and refining target of two-thirds, Mr. Shelly calculates.
Four new upgraders could cover this demand, he said. This would translate to $40-billion in capital investment, and 60,000 people-years of employment during construction, he said.
Of those positions, 11,000 would be high-end jobs like engineering. The additional capacity would mean 6,000 permanent jobs.
I believe Canada needs more bold thinking and the projects to match that bold thinking.
I’m not a big fan of the whiny and defeatist “Canada is so small and tiny” mentality.
Canada is the second largest country on the planet.
We are one of the richest countries on this planet.
We have a decent sized population at 34 million people.
From Saturday’s Financial Post, Susan McArthur’s column is titled “Instead of pipelines, build refineries here”
…it’s time Canada comes of age and starts to transform more of its resources into value-added products at home.
When it comes to our oil resources, this is no small undertaking. The price tag to build the infrastructure and refining complex scaled for our vast oil reserves could be as much as $100-billion and could take 20 years.
We have the resources, the natural proximity to ports, rail infrastructure and voracious customers south of the border and within 36 hours of our export terminals.
All it takes is vision, capital, know-how, tenacity and chutzpah.
And a big bold plan.
Northwest Red Water Partnership (NRWP) is a perfect example. Founded by Ian Macgregor’s Northwest Upgrading and in partnership with Canadian Natural Resources Ltd. and the Alberta government, NRWP is the first new refinery to be built in North America in 30 years.
The $15-billion project is the stuff legends are made of. Alberta decided it wanted its share of the higher, less-volatile margins that come from converting bitumen to refined products. NWRP won the government’s tender and as a result a new refinery is being built at home, which will process a portion of Alberta’s royalty production.
The website for the North West Red Water Partnership.
I’m quoting from the concluding portion of Lawrence Solomon’s column is this Saturday’s Financial Post.
And that’s why, Mr. Harper, your defence of the oil sands requires you to lead on climate change, too, by bringing your fellow G8 leaders up to date on global warming science.
As I am confident you already know, no compelling evidence whatsoever indicates that carbon dioxide — a colourless, odourless, tasteless gas necessary for plant growth — poses a danger to the planet.
The only “evidence” has come from myriad computer models, all of which subsequently failed to work.
Blowing the whistle on global warming would not only be good for the Canadian economy, it would also be good politics. Although your G8 colleagues may not know that global warming is a scare whose time has passed, the majority of the citizens of their countries do — this Emperor has no clothes.
Even in the United States, which has a true-believing global warming activist President in Barack Obama, most don’t buy it. Even most U.S. Democrats don’t buy it.
If a leader does speak up — as happened when Vaclav Klaus, president of the Czech Republic, told Czechs that global warming is a fraud — public opinion will swing in his favour. Only 11% of Czechs now buy the global warming theory.
Mr. Harper, we didn’t hire you to duck as Canada’s reputation is trashed. We elected you to stand up for Canada.
I find the concept of Peak Oil to be similar to the scam of man-made global warming.
Plenty of yammering to force an ideological agenda down our throats, to grab money from our pockets and decrease the standard of living for billions of people.
From the Merriam-Webster online dictionary.
yam·mered – yam·mer·ing
Definition of YAMMER
a : to utter repeated cries of distress or sorrow
b : whimper
: to utter persistent complaints : whine
: to talk persistently or volubly and often loudly
Daniel Yergin has a new book out and is making the rounds.
Last Saturday, Yergin wrote The Saturday Essay in the Wall Street Journal.
“Hubbert was imaginative and innovative,” recalled Peter Rose, who was Hubbert’s boss at the U.S. Geological Survey. But he had “no concept of technological change, economics or how new resource plays evolve. It was a very static view of the world.” Hubbert also assumed that there could be an accurate estimate of ultimately recoverable resources, when in fact it is a constantly moving target.
Hubbert insisted that price didn’t matter. Economics—the forces of supply and demand—were, he maintained, irrelevant to the finite physical cache of oil in the earth. But why would price—with all the messages that it sends to people about allocating resources and developing new technologies—apply in so many other realms but not in oil and gas production? Activity goes up when prices go up; activity goes down when prices go down. Higher prices stimulate innovation and encourage people to figure out ingenious new ways to increase supply.
The idea of “proved reserves” of oil isn’t just a physical concept, accounting for a fixed amount in the “storehouse.” It’s also an economic concept: how much can be recovered at prevailing prices. And it’s a technological concept, because advances in technology take resources that were not physically accessible and turn them into recoverable reserves.
In the oil and gas industry, technologies are constantly being developed to find new resources and to produce more—and more efficiently—from existing fields. In a typical oil field, only about 35% to 40% of the oil in place is produced using traditional methods.
Here is a counterpoint to Yergin’s essay.
The comments section of the above link is quite the read.
For myself, the most common sense comment is from “bartman”
The question remains, however, about how much oil remains in the ground, how cheaply or expensively we can extract it, and what are the costs versus the alternatives.
We know that we have extracted a small percentage of oil in place in currently explored fields, we know that a much higher percentage of that can be (and is being) extracted at current prices with new applications of technology. We also know that lower marginal-cost alternatives using oil as a transportation fuel exist. All these factors point out that any increasing relative scarcity for oil that may exist in the future will not be a big deal.
The economic answer is that there are many alternatives to oil, and if the price goes much higher, we will avail ourselves of those alternatives quite easily, without the broadscale pestilence and holocaust the peak-oilers want to see.
This week, the New York Times had an article on how the ‘Americas” are surging into an oil boom.
Up and down the Americas, it is a similar story: a Chinese-built rig is preparing to drill in Cuban waters; a Canadian official has suggested that unemployed Americans could move north to help fill tens of thousands of new jobs in Canada’s expanding oil sands; and one of the hemisphere’s hottest new oil pursuits is actually in the United States, at a shale formation in North Dakota’s prairie that is producing 400,000 barrels of oil a day and is part of a broader shift that could ease American dependence on Middle Eastern oil.
For the first time in decades, the emerging prize of global energy may be the Americas, where Western oil companies are refocusing their gaze in a rush to explore clusters of coveted oil fields.
I think it would be foolish to underestimate human inventiveness combined with the profit motive.
But of course, for many on the “progressive” and “tolerant” left, humanity is the problem.
TransCanada Corp.’s bid to build the $7-billion Keystone XL pipeline is facing growing high-profile opposition, drawing fire from the Dalai Lama and eight other Nobel Peace Prize laureates, who insist the project will “endanger the entire planet.”
Endanger the entire planet…..wow, sounds serious!
The letter’s authors say the development of Alberta’s oil sands will endanger the planet as a result of rising greenhouse gas emissions that contribute to catastrophic climate change.
Ah, catastrophic climate change, remember dear reader, not too long ago, it was still called man-made global warming.
Why did they change it? Oh, yeah.
Two interesting items from the Globe and Mail, one from Thursday and one from Friday.
An idea I heard about earlier in the summer was covered in Friday’s paper, reversing the flow of two Eastern pipelines to get Alberta crude moving further into Ontario, into Quebec and on to the Atlantic Coast at Portland, Maine.
Earlier this month, Enbridge filed for approval to partially reverse the flow of Line 9, a pipe that currently carries African and Middle Eastern crude from Montreal through southwestern Ontario to refineries around Sarnia, Ont.
The $16.9-million proposal, which could be built by next fall, would instead see western oil, which crosses the continent on other Enbridge pipes, reverse the flow on a roughly 200-kilometre section of pipe from Sarnia to Westover, an oil hub northwest of Hamilton.
From that hub, the crude could feed a United Refining Co. operation in Pennsylvania and the Imperial Oil Ltd. refinery at Nanticoke, Ont.
This could be expanded upon by reversing the flow of the one of the two pipelines on the Portland Montreal Pipe Line.
Doing so would also require flipping the direction of another pipe, the Portland Montreal Pipe Line, which currently transports crude from Maine to Quebec. Officials with Portland Montreal say they are in talks to do just that.
“We’re still very much interested in reversing the flow of one of our two pipelines to move Western Canadian crude to the eastern seaboard,” said company treasurer Dave Cyr. “We’re having discussions with Enbridge on their Line 9 and what it means to us.”
The $5.5-billion mega-pipe would bring up to 525,000 barrels per day of Canadian crude from Alberta’s oil sands to the West Coast for shipment to refineries in California and Asia.
The 1,172-kilometre line would be the first major non-U.S. export option for the Canadian energy industry,….